Monthly Archives: January 2017

The headline says it all.  Below is a January 30, 2017 article by Brendix Anderson, reprinted from National Real Estate Investor magazine (I added the bolds).

Springwood’s TRU by Hilton Lancaster, PA

Hotels had another great year in 2016, even though developers keep on opening new properties. For the whole year of 2016, the occupancy rate for hotels averaged 65.5 percent in the U.S., according to hotel data firm STR.

“It’s the highest occupancy rate ever recorded for a year,” says Jan Freitag, senior vice president of lodging insights for STR.

Occupancy rates have kept rising even though hotels face competition both from home-sharing websites like Airbnb and from hotel construction. However, occupancy rates are expected to dip slightly in 2017 and 2018, while demand will help keep room rates rising at a healthy rate.

There are now 183,000 hotel rooms under construction in the U.S., according to STR. That’s up 30 percent from 2015. This year, the inventory of hotel rooms is expected to grow by 2.0 percent. Demand for those hotel rose is expected to be high, but not high enough to keep the occupancy rate from falling on average by 0.5 percent in 2017.

Nevertheless, revenue per available room is expected to rise 2.3 percent in 2017, according to STR. Room rates should also rise 2.8 percent on average.

The danger of overbuilding would be higher if banks were more willing to make construction loans. Some large hotel projects in downtown areas have been delayed because banks are not willing to lend as much.

“The level of new construction is not as high as it would normally be given the occupancy numbers,” says Jeff Myers, managing consultant for CoStar Portfolio Strategy. “The financing is not there.”

“There has truly been a shift in new construction—in what is being built and where it is being built,” says Myers. More than a third of all the new hotel rooms that have opened since the recovery began in 2010 have opened in central business districts (CBDs). Before 2010, the share of all new hotels that opened in downtown areas was closer to one in six, according to CoStar.

“If there is a supply risk, the risk is going to be most pronounced downtown or in downtown submarkets,” says Myers.

PwC predicts a stronger rise in 2017 ADR and RevPAR than its earlier predictions.  This revision is based on post-election optimism which they say resulted in a stronger-than-projected 4th quarter for the U.S. hospitality industry.

Below is a reprint of a January 25, 2017 article from the Hotel Management Newsroom that gives the details:

A new forecast released by PwC US found strong industry performance took place during Q4 2016, including positive trends in demand and average daily rate. This was boosted by a post-election surge in consumer and business sentiment resulting in improved economic conditions, which PwC expects to result in continued revenue-per-available-room growth in 2017.

The forecast is calling for increased room supply to marginally outpace growth in demand for this year, resulting in an occupancy decline to 65.3 percent. This will be aided by an expected increase in corporate transient demand and improvements in ADR to drive RevPAR up 2.3 percent.

PwC draws its latest numbers from IHS Markit, which expects real gross domestic product to increase 2.3 percent in 2017 based on a fourth-quarter-over-fourth-quarter measurement. This is roughly 50 basis points higher than a forecast released in November by PwC, and is influenced by improving economic conditions traced to improving business and consumer confidence, positive financial markets and potential policy decisions focused on tax cuts and altered trade regulations.

“Based on a strong fourth quarter, we are encouraged by the trends we are seeing as we head into 2017,” Scott D. Berman, principal and U.S. industry leader, hospitality & leisure, PwC, said in the report. “However, we remain cautiously optimistic, as higher-than-previously anticipated increase in demand is still expected to be offset by increasing supply through the year.”

The updated estimates from PwC are based on a quarterly econometric analysis of the U.S. lodging sector, using an updated forecast released by IHS Markit and historical statistics supplied by STR and other data providers.